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Debt Securities

Nigeria’s Asset to GDP Ratio Is low despite rise in Mutual Fund value

As Nigeria’s mutual fund asset value keeps trending towards the trillion-naira mark, data has shown that the country still ranks low in mutual fund to GDP ratio when compared to other countries.

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As mutual fund asset value in Nigeria keeps trending towards the trillion-naira mark, data from the Securities and Exchange Commission has revealed that the total asset under management of Nigerian mutual funds stood at N783.8 billion as at June 14, 2019. When analyzed by Quantitative Financial Analytics, it was discerned that the continuous increase in mutual fund investment value comes mostly from additional investor contributions.

The analysis also indicates that investors have poured about N195.1 billion into mutual funds since the beginning of the year, while about N57 billion has been withdrawn within the same period.

It is all about Money market funds

Investors keep loving their money market funds as much of the inflows went there, thereby increasing the percentage of money market fund asset in relation to the overall mutual fund asset value. 71% of mutual fund assets in Nigeria (representing N564 billion out of the N783 billion) was invested in money market funds. Only 3.3% of mutual fund assets were invested in equity exposed funds. This underscores the conservative disposition of investors in Nigeria.

[READ FURTHER: A guide to how Mutual Funds work in Nigeria]

In spite of Nigerians’ aversion to risk as indicated by their “over” allocation to money market funds, it is very encouraging to note that since 1991 when the first mutual fund was launched in Nigeria, mutual fund investment has remained virtually in the ascendency.

Mutual Fund to GDP ratio Remains Low

Meanwhile, even though the growth in fund asset is commendable, Nigeria still ranks low in mutual fund to GDP ratio when compared to other African countries and globally. While the latest SEC released Summary of Mutual Fund Net Asset Value (NAV) puts total fund asset at N783 billion, Nigeria’s GDP stood at about N161 trillion as at first quarter of 2019, according to the National Bureau of Statistics. That translates to about $447 billion, at the rate of N360 to the Dollar. Those numbers translate to a 0.49% mutual fund asset to GDP ratio.

Information gathered from the World Bank shows that Nigeria has one of the lowest mutual fund to GDP (MF_GDP) ratio in Africa and even globally. According to the World Bank data, between 2011 and 2014, MF-GDP ratio in Nigeria remained constant at 0.12%, but in 2014, it increased to .14% with a further increase to 0.19% and .21% in 2015 and 2016 respectively. Nigeria is the largest economy in Africa. The second largest economy (South Africa) had an MF-GDP ratio of 63.43% in 2016 according to the World Bank. Morocco had 26.42% MF-GDP ratio in 2009, while Mauritius and Egypt had 4.44% (2015) and 4.64% (2009) respectively. More so, India, which considers itself to be in the lower echelon of MF-GDP ratio had 8.85% in 2016 while Malaysia, a developing country like Nigeria had an MF-GDP ratio of 29.14% in 2016.

[ALSO READ: Mutual Fund Prospectus explained – Part 2]

Nigeria's economy - growth

President Muhammadu Buhari

Great Opportunities

As sad as the above numbers may seem, the implication is that the situation presents significant untapped potential growth for operators in the Nigerian mutual fund industry. There are currently about 90 mutual funds in Nigeria compared to 2,100 in India. There is, therefore, a yawning gap and crying need to deepen mutual funds investment in the country, just like PenCom is making concerted efforts to deepen pension fund coverage.

As a matter of fact, mutual fund operators and regulators should borrow a leaf from PenCom. The situation looks even worse when considering the fact that out of the 90 mutual funds in Nigeria, Stanbic IBTC Money Market Fund and FBN Money Market Fund together command about 62% of the total assets. About 72% of mutual fund assets are in money market funds that require little or no active management. It is time for Nigerian mutual fund managers to get out of the couch and get creative by launching more funds and reaching more investors.

[READ FURTHER: Understanding Mutual Fund Fees: Management Fee]

Technology to the Rescue

There is no doubt that technology has been of immense help in actualising the extent of financial inclusion that presently exists in Nigeria. That same technology should be harnessed and utilised towards the furtherance of knowledge as well as the creation of interest in mutual funds.

Lack of Transparency is the bane of mutual funds

The damage that the lack of transparency in mutual funds is doing to the industry cannot be overemphasized. For instance, Nigerian mutual funds are very opaque. Daily prices are hard to come by, factsheets are nowhere to be found, fund performance information is missing in action, investors are not sure of what their funds are holding or investing in, neither are the investors sure of the expense ratio of their funds.

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In addition to that, the lack of financial products for the mutual funds to invest has resulted in the lack of diversification, which is the hallmark of mutual fund investments. Different mutual funds in Nigeria are so correlated with each other, such that investing in multiple mutual funds to achieve the desired level of diversification leads to increased concentration risk.

High correlation and over concentration has the effect of magnifying losses whenever they occur, which in turn may dissuade investors from investing in mutual funds. Fund managers should begin to look outside Nigeria into foreign investments to broaden their financial product choices and achieve international diversification.

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Investor Education Is Necessary

Many people in Nigeria still do not understand how mutual funds work and how they can be used for financial and investment planning. Fund managers and the Government should find a way to educate Nigerians on this financial product with a view to increasing participation.

READ THIS: These two mutual funds will pay dividends to its investors

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Uchenna Ndimele is the President of Quantitative Financial Analytics Ltd. MutualfundsAfrica.com and mutualfundsnigeria.com (both Quantitative Financial Analytics company website) is a leader in supplying mutual fund information, analysis, and commentary on African mutual funds. We provide reliable fund data; and ratings information that will add value to fund managers, the media, individual investors and investment clubs.

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Debt Securities

DMO debunks misappropriation rumour, clarifies missing N2.2 trillion in 2018 Appropriation Act

The DMO has debunked rumours of misappropriation of a N2.2 trillion debt service provision in the 2018 Appropriation Act.

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Debt Management Office resumes FGN savings bond offer on August 10, Eurobonds, Patience Oniha, DMO, External debt servicing

The Debt Management Office of Nigeria (DMO) has vehemently denied the rumour making the rounds that it was unable to account for the sum of N2.2 trillion allocated to its office in the 2018 Appropriation Act.

The agency in a recent disclosure available on its website described the claims as not only false but extremely misleading.

It is pertinent to note that the rumours became rife, after DMO honoured an invitation by the Public Accounts Committee of the House of Representatives, to explain how it spent the sum of N2.2 trillion provided in the 2018 Act. The DMO appeared before the aforementioned committee on the 26th of February, 2021.

Clarifying the issue, the DMO explained that of the N2.2 trillion provided in the 2018 Act; only the sum of N721, 251,798.00 was appropriated to its agency, while the remaining N2.1 trillion was earmarked for Debt Service. In lieu of this, the DMO emphasized that the appropriated sum of ₦2.2 trillion was not available as the DMO’s total allocation.

What they are saying

Commenting on the issue, a part of the press release reads: ‘’ The DMO wishes to emphasize that the provisions in the Annual Appropriation Acts for Debt Service, including the 2018 Appropriation Act, are dedicated for Debt Service payments only; that is, for the repayment of Principal, Interest and Other Charges for both Domestic and External Debt.

“Indeed, the funds for Debt Service are never released to the DMO for spending, rather, in line with the mandate of the Office of the Accountant-General of the Federation (OAGF), the funds are domiciled with the OAGF, who on the advice of the DMO, effects payments directly to the creditors as at when due. Such creditors include multilateral and bilateral lenders like the World Bank, African Development Bank, Exim Bank of China, investors in Nigeria’s Eurobonds, as well as, investors in securities issued in the domestic market such as FGN Bonds, SUKUK, Green Bonds and Nigerian Treasury Bills.”

It also went further to justify the need for Debt Servicing, emphasizing that: “The general public is invited to note that servicing of the public debt is absolutely necessary to ensure that Nigeria remains credit-worthy and retains or improves on its sovereign rating which ultimately, will support growth and development. It is for this reason as well as transparency purposes, that Debt Service is expressly provided as a line item in the Annual Appropriation Acts.’’

What you should know

  • The 2018 Appropriation Act authorized the Federal Government of Nigeria to withdraw a total sum of N9, 120,334,988,225 from the Consolidated Revenue Fund, in a bid to meet expenditure requirement in the 2018 fiscal year.
  • A breakdown of the 2018 Act showed that; N3,512,677,902,077 was earmarked for recurrent expenditure, N2,873,400,351,825 (capital expenditure), 2,203,835,365,699 (Debt Service and DMO’s allocation) and N530,421,368,624 (Statutory transfers).

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Debt Securities

DMO announces March 2021 FGN Savings Bond offer for subscription

The DMO, on behalf of the Federal Government of Nigeria, has offered for subscription, the March 2021 FGN Savings Bond.

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Debt management office, DMO,Nigeria's Debt to revenue ratio, DMO suspends April 2020 FGN savings bond offer

The Debt Management Office (DMO), on behalf of the Federal Government of Nigeria has offered for subscription, the March 2021 Federal Government of Nigeria Savings Bond.

This is contained in a notification published on the website of the agency on Monday. According to the notification, the savings bond offer comes in two tranches;

  • 2-year FGB Savings Bond due March 10, 2023: 5.181% per annum
  • 3-year FGN Savings Bond due March 10, 2024: 6.181% per annum

Details

  • Opening Date: March 1, 2021
  • Closing Date: March 5, 2021
  • Settlement Date: March 10, 2021
  • Coupon Payment Dates: June 10, September 10, December, and March 10
  • Units of sale: N1,000 per unit subject to a minimum subscription of N5,000 and in multiples of N1,000 thereafter, subject to a maximum subscription of N50 million.

According to the circular, the offer is backed by the full faith and credit of the Federal Government of Nigeria and charged upon the general assets of Nigeria.

Interested investors were however advised to visit their website in order to get the list of stockbroking firms appointed as distribution agents.

What you should know

  • Nairametrics had reported the offer for subscription of a similar Savings Bond in February with interest rates of 4.214% and 5.214% per annum for 2 years and 3 years tenor respectively.
  • The interest rate for the latest offer is, however higher than the offer announced in February. This could be a move to attract more investors to subscribe to the securities.
  • The FGN Savings Bond is an investment product issued through the Debt Management Office (DMO) on behalf of the Federal Government.
  • It also qualifies as securities in which trustees can invest under the Trustee Investment Act, and is listed on the Nigerian Stock Exchange.

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